Question

What is the quick ratio or or acid test ratio for a company that has current assets of $28,000, inventory of $4000, and current liabilities of $6000?

Answer 1

The quick ratio, also known as the acid test ratio, measures a company's ability to pay off its current liabilities without relying on the sale of inventory. In this case, the quick ratio for the given company is 4, indicating a strong ability to meet short-term obligations.

Step-by-step explanation:

The quick ratio, also known as the acid test ratio, measures a company's ability to pay off its current liabilities without relying on the sale of inventory. It is calculated by subtracting inventory from current assets and then dividing by current liabilities. In this case, the quick ratio would be calculated as follows:

1. Current Assets - Inventory = $28,000 - $4,000 = $24,000
2. Quick Ratio = $24,000 / $6,000 = 4

Therefore, the quick ratio for the company in question is 4. This means that the company has $4 of liquid assets available for every $1 of current liabilities, indicating a strong ability to meet short-term obligations.